A REVIEW OF U.S.-TURKEY RELATIONS IN 2017 AND PROSPECTS FOR 2018

In January 2017, Turkish Heritage Organization released the first edition in an annual report series assessing the previous year’s most pressing developments in U.S.-Turkey relations.

With this report series, now in its second year, we aim to present a comprehensive, yearly accounting of the state of the bilateral relationship between Washington and Ankara across THO’s six issue areas: security, humanitarian aid, economy, energy, education, and technology.

2017 was a difficult year for U.S.-Turkey relations. Now more than ever, it is crucial that both the American and Turkish communities are given opportunities to engage with each other and participate in candid and constructive dialogue.

We hope this this year’s report can serve as a guidepost for those in the U.S. and Turkey who seek to better understand the dynamics between Washington and Ankara, whether they are policymakers, business leaders, media professionals, or members of academia.

EXECUTIVE SUMMARY

U.S.-TURKEY RELATIONS IN 2017: AN OVERVIEW

2017 was a year of rising tensions for U.S.-Turkey relations. Washington and Ankara experienced disagreements over a variety of issues, including:

the U.S.’ arming of the People’s Protection Units (YPG) in Syria;

the Iran sanctions trial of Halkbank executive Mehmet Hakan Atilla;

the Trump administration’s decision to recognize Jerusalem as the capital of Israel;

In October 2017, tensions heightened when the U.S. decided to suspend non-immigrant visa services at its embassy and consulates in Turkey over the arrest of Turkish nationals working at U.S. consulates. Turkey responded in kind. The visa dispute was resolved at the end of December 2017.

Despite these tensions, there were over 30 instances of high-level engagement between Turkish and American government officials.

Turkish officials such as President Recep Tayyip Erdogan, Prime Minister Binali Yildirim, Foreign Minister Mevlut Cavusoglu, then Defense Minister Fikri Isik, and then Justice Minister Bekir Bozdag visited the U.S. during 2017 to meet with their counterparts.

U.S. officials such as Secretary of State Rex Tillerson, Chairman of the Joint Chiefs of Staff Gen. Joseph Dunford, Deputy Assistant Secretary of State Jonathan Cohen, and U.S. Permanent Representative to the United Nations Amb. Nikki Haley visited Turkey in 2017.

SECURITY

Major Developments in 2017:

In May 2017, the U.S. announced its decision to directly arm the YPG in Syria as part of its plan to defeat ISIS. The move angered Turkey, which sees the YPG as a major threat to its domestic security due to the group’s ties to the PKK.

Turkey moved forward with plans to acquire the S-400 missile system from Russia, sparking concern in the U.S., given that the system would not be interoperable with NATO technology.

Prospects for 2018:

Turkey’s January 2018 launch of “Operation Olive Branch” against YPG elements in the Afrin district of northwestern Syria, combined with continued U.S. support of the YPG east of the Euphrates, indicate that U.S.-Turkey tensions over the YPG will continue in 2018.

While the S-400 deal between Ankara and Moscow has not yet been finalized, there are concerns that it could trigger U.S. sanctions in 2018 under the “Countering America’s Adversaries Through Sanctions Act” (CAATSA), which was signed into law in August 2017.

HUMANITARIAN AID

Major Developments in 2017:

Rising tensions between international non-governmental organizations (INGOs) and the Turkish government regarding registration procedures worsened when U.S.-based aid organization Mercy Corps' registration was revoked due to Turkey’s security concerns about its cross-border operations in northern Syria.

To emphasize U.S. commitment to cooperating with Turkey on the humanitarian crisis, U.S. Permanent Representative to the United Nations Amb. Nikki Haley visited Turkey to assess Ankara’s refugee response. Amb. Haley commended Turkey for continuing to provide aid to its Syrian refugee community.

Prospects for 2018:

In 2018, the global community will continue to emphasize burden-sharing in order to relieve some of the financial burden on host countries with large refugee communities. Though Turkey is still waiting to receive the entirety of funds promised by the EU as part of a 2016 deal, cooperation between Turkey and the EU will continue, with the latter providing increasing assistance to Turkey's refugee population.

Many INGOs remain in Turkey despite bureaucratic tensions, carrying out valuable programs and providing aid to refugees both in Turkey and across the border in Syria. In 2018, Turkey's government will need to better communicate rules and regulations to INGOs so that these organizations may continue to operate legally within the country.

ECONOMY

Major Developments in 2017:

Overcoming the residual challenges of 2016, Turkey's gross domestic product (GDP) experienced 11.1% growth in Quarter 3 of 2017. Overall, Turkey closed out 2017 with higher growth expectations than initially forecasted by organizations like the World Bank, the OECD, and the European commission.

Throughout 2017, the Turkish lira (TRY) fluctuated against the U.S. dollar (USD), hinting at underlying instability despite high GDP growth. The lira hit a new record low of 3.98 TRY to one USD on November 22, a month after the U.S. and Turkey mutually suspended non-immigrant visa services.

Prospects for 2018:

Turkey is expected to continue its positive GDP growth, with the World Bank projecting growth of 3.5% in 2018. With moderate to high GDP growth, Turkey is considered one of the most attractive emerging markets going into 2018.

Consumer inflation remains high and will continue to be a challenge for Turkey's investment atmosphere in 2018 if household income does not rise to meet the inflation rate. The private sector will become increasingly hesitant to pursue new investments in Turkey if inflation is not stabilized.

ENERGY

Major Developments in 2017:

In April 2017, Turkey unveiled a national energy policy that is aimed at reducing its dependence on foreign energy imports, which come primarily from Russia and Iran. In 2017, over 50% of Turkey’s natural gas imports came from Russia, while almost half of its crude oil imports came from Iran.

The U.S. made modest strides toward deepening U.S.-Turkey energy cooperation by increasing its liquefied natural gas (LNG) exports to Turkey. U.S. companies like General Electric (GE) also made investments in Turkey’s renewables sector.

Prospects for 2018:

Despite Turkey’s desire to wean itself off Russian energy, progress on the TurkStream national gas pipeline will do the opposite in 2018 and could even trigger U.S. sanctions.

Regardless, Turkey will continue to shore up its domestic energy sector in 2018, especially its renewables sector, and U.S. companies will have even greater opportunities to invest.

EDUCATION

Major Developments in 2017:

U.S.-Turkey academic ties continued to weaken in 2017 as both the number of Turkish students studying in the U.S. and the number of American students studying abroad in Turkey continued to drop.

Following the July 2016 coup attempt and throughout 2017, a majority of U.S. higher education institutions as well as some U.S. government-funded programs chose to continue the suspension of their study abroad programs in Turkey.

Prospects for 2018:

There are signs that some study abroad opportunities for American students will come back online in 2018; for example, it is expected that the Fulbright English Teaching Assistantship (ETA) program in Turkey, which has been suspended since the fall of 2016, will re-open during the 2018-19 academic year.

However, in January 2018 the U.S. updated its travel warning for Turkey, advising U.S. citizens to reconsider travel to the country. As long as this travel warning remains in effect, many U.S. institutions will likely refrain from sending students to Turkey.

TECHNOLOGY

Major Developments in 2017:

Despite initially feeling the negative effects of the July 2016 coup attempt on the investment environment, Turkey’s innovation ecosystem regained some of its momentum, with Turkish startups – overwhelmingly dominated by tech ventures – receiving $140 million in investment in the first 11 months of 2017.

Additionally, some U.S. companies made strides toward building up ties with Turkey’s innovation ecosystem. In November 2017, Boeing revealed plans to open a development center in Istanbul, while in July 2017, Chobani founder Hamdi Ulukaya launched an initiative to train promising Turkish entrepreneurs.

Prospects for 2018:

Turkey will continue to build up its research and development (R&D) potential in 2018 by increasing the number of its technoparks to 80, it’s R&D centers to 1,000, and its design centers to 250.

However, Turkey’s innovation ecosystem remains reliant on foreign investment, which is still being negatively affected by the security and political situation in the country. Additionally, Turkey’s economy remains fragile going into 2018; if it experiences a crisis this year or beyond, Turkish tech startups will suffer.

THO RECOMMENDATIONS FOR THE U.S. AND TURKEY IN 2018

In 2018, Washington and Ankara need to make strides towards overcoming the tensions that have brought this bilateral relationship to the lowest point in recent memory.

To do so, direct, high-level engagement between American and Turkish officials should continue in 2018 and should consist of dialogue that is clear and constructive. As such, it is imperative that a new U.S. ambassador to Turkey is appointed and confirmed as soon as possible to ensure that communication can continue without interruption during this critical period.

Additionally, officials on both sides should avoid harsh, unproductive rhetoric that could further inflame tensions between the two countries.

Instead, in 2018 both sides should make efforts to translate rhetoric about the “strategic” importance of the alliance into a partnership that goes beyond the transactional approach that both countries have increasingly taken toward each other.

Finally, despite ongoing tensions, American and Turkish actors at both the state and non-state levels should strive to find opportunities for collaboration in 2018, especially in the areas humanitarian aid, economy, energy, education, and technology.